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Old 03-19-2013, 10:54 AM   #1
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Bitcoin discussion

SwissAustrian -

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BCs are the antithesis of pms: Their value is relational (p2p) due to artificial scarcity and disinflationary supply growth, pms are valuable due to the difficulty of mining them. Their scarcity is natural, but supply growth is not artificially managed (central banks activity and paper pms aside).
I do own some BCs, but they're about 1/50000 of my pm holdings.

I think it would be more fair to say BC's supply growth is artificially pre-determined rather than artificially managed. (The 'certainty' and clarity about future supply growth is an advantage imo)

Imo PM's are not valuable because of their scarcity or the difficulty of mining of them. However these two factors are critical pre-requisites for something to be considered as a medium of exchange & have relational value assigned to it. (Rhodium for example is roughly 100 times more scarce than gold. Why not 100 times the price? Because golds value is also highly relational.)

The difficulty related to mining the set amount of BC's available annually also increases in direct relation to the total computing power directed at mining them. This is mathematically very pure.

I think regardless of your views on BC's as an alternative currency, it's pretty clear that people in southern Europe are realizing their bank deposits are at risk in a big way.

So I believe the likelihood of Southern Europeans moving 600 million dollars in BC's this month > than the likelihood of a major event happening that destroys the price of BC's this month.

Which mean the chance of my investment/gamble doubling is greater than the chance of losing it. So for me it's a positive trade.

You could invest $100, reclaim your initial investment when price doubles and leave $100 profit in BC's.
Now you have long term exposure to BC which was gained for what imo is relatively low risk.

(Note: I have many many reservations about the medium to long term viability of BC's)

The price when I posted in the Cyprus thread two hours ago was $54 let's see how long it takes to either get to $108 or crashes big time.
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Old 03-19-2013, 11:01 AM   #2
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I believe in the longterm appreciation of BCs, too.
However, I think they're a bad hedge against shtf scenarios:
1.) You need the internet to trade them, ie you need electricity, a computer, and a web connection. All of it is need by your counterparty, too, due to the p2p structure.
2.) The internet can be regulated / monitored
3.) BCs could be either taxed or even outlawed, e.g. in the name of fighting money laundering.

Besides, the general problem is obviously the limited market size. Bid/ask spreads are pretty high and exchange rates are very volatile. Short term I think BCs are in overbought mode.
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Old 03-19-2013, 11:23 AM   #3
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I agree they are a bad hedge against shtf.

Though there are some scenarios where if you need to leave your country, getting out with PM's could be difficult but BC's not so much.

With regards being in overbought mode, I don't think so.

I ask myself in this world with trillions of dollars of bank deposits under threat how much money could I see moving into a digital currency that is in principal decentralized, anonymous, and can't be artificially inflated beyond it's current construct. I can easily see more than 10 billion dollars going in there this year. Which would mean the price could easily increase 10-15 fold.

Though I also ask myself could I see the powers that be attempting to shut down/disrupt/attack BC's? Definitely. Could I see some other event occurring regarding the code/software/bug that makes BC's vulnerable and even worthless. Definitely - in fact such an event happened just last week.

So two big sides to weigh up. My conclusion is that it is VERY risky but still worth putting a little something in.
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Old 03-19-2013, 11:35 AM   #4
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Take a look at this longterm chart:
We're technically VERY overbought by any metric
1. Divergence between the 50 and 200 dma
2. MACD in insane territory
3. RSI extremely overbought



Sorry for crappy quality of the chart, here's a direct link:
http://bitcoincharts.com/charts/mtgo...gMACDzi2gRSIzv

This looks like a blow off top similar to June 2011 to me.

Another indicator for a short term mania is google trends:
http://www.google.com/trends/explore#q=bitcoin
Bitcoin has gone vertical over the last weeks, similar to June 2011.

We're most likely to see a smilar long term correction like in late 2011.
New highs were not reached until about 4 weeks ago.
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Old 03-19-2013, 12:45 PM   #5
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Thanks for posting the graph and discussing BC's.

For me the investment story is that more and more money will flow into BC unless there is a 'security event'. The significance of the security event will determine the size of the price fall and how long the price takes to recover.

For example the blow off top you mentioned in June 2011 wasn't something that could have been predicted using overbought/sold indicators and technical analysis.

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On 19 June 2011, a security breach of the Mt.Gox bitcoin exchange caused the nominal price of a bitcoin to fraudulently drop to one cent on the Mt.Gox exchange, after a hacker allegedly used credentials from a Mt.Gox auditor's compromised computer to illegally transfer a large number of bitcoins to himself. He used the exchange's software to nominally sell them all, creating a massive "ask" order at any price.

Most recently there was major event on the 12th of March

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On 12 March 2013, a bitcoin server (also called a "miner") running the more recent "version 0.8.0" of the bitcoin protocol created a large record in bitcoin's transaction log (called the blockchain) that was incompatible with earlier versions of the bitcoin protocol due to its size. This created a split or "fork" in the transaction log. Users ran the more recent version of the protocol while accepting and building on the diverging log as other users ran older versions of the bitcoin protocol and rejected it. This split resulted in two separate transaction logs being formed without clear consensus, which allows for the same funds on both chains to be double-spent. In response, the Mt.Gox bitcoin exchange temporarily halted bitcoin deposits.[33] The price of a bitcoin fell 23% to $37 on the Mt.Gox bitcoin exchange as this event occurred but subsequently rose most of the way back to its prior level of approximately $48.[26][27]
I think traditional European banks have just experienced a 'security event' & that we will see a removal of funds from banks which if graphed would look similar to the fall in BC's during June 2011 and also take a similar time to recover. (Edit: If it recovers...)
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Old 03-19-2013, 01:47 PM   #6
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These types of issues are obviously also known to tptb. If BC were ever to become a real threat, their cyberwarefare departments would be able to cause similar events.
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Old 03-19-2013, 02:57 PM   #7
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Definitely they would be able to cause similar events and they are already watching it closely from what I gather.

Another threat is evolution. Even though BC can itself evolve, it was the first major crypto-currency & as such it has many flaws, most of which are beyond my ability to understand. So it could be made obsolete by something which performs the task better.
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Old 03-19-2013, 03:47 PM   #8
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I reckon the relatively sudden move into bitcoin is a strong indicator that confidence in fiat is dissolving and as people wake up and look around for a relatively safe alternative, bitcoin actually becomes a consideration.

Just imagine how much more pm's would benefit right now, if not for the frantic suppression using paper gold.

ps. sorry ive been a bit low profile recently, Ive been adventuring in France and doing a crash course in eerrr cultural stuff ..........

and a warm welcome to those whove recently joined us (-:
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Old 03-19-2013, 04:23 PM   #9
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Hi Rblong2us,

Yeah definitely.

The huge price drops in the past were the result of people hacking sites but nothing being fundamentally wrong with BC itself. However the security event I quoted that happened on the 12th of March really calls into question the entire integrity and safety of BC.

Yet the fact that it didn't crash, on the contrary more money seems to be flooding in, just shows not how great BC is, but just how pretty much anything is better than fiat right now.

So as you said, just imagine how much fiat must be flowing into gold right now.
(As I mentioned in Cyprus thread the UK based Bullionbypost had their biggest trading day ever on Mon.)

They have a real problem because they can print Euros but they can't print gold.
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Old 03-19-2013, 11:52 PM   #10
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Anyone else notice that the only thing that hasn't increased in price over the last year is Gold and Silver. BC is being used as a proxy to try and stear money away from precious metals just like platinum is/was.
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Old 03-20-2013, 07:17 AM   #11
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Originally Posted by stockjockee View Post:
Anyone else notice that the only thing that hasn't increased in price over the last year is Gold and Silver. BC is being used as a proxy to try and stear money away from precious metals just like platinum is/was.
With a lot of countries going after PMs with taxes, tariffs, and export/import bans, BitCoins are seen by some as a better way to sneak your wealth out of a repressive country. On the other hand, there are many who are merely speculators trying to make a quick profit.
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Old 03-22-2013, 06:41 AM   #12
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Quote :
...
The WSJ reports that, "the U.S. is applying money-laundering rules to "virtual currencies," amid growing concern that new forms of cash bought on the Internet are being used to fund illicit activities. The move means that firms that issue or exchange the increasingly popular online cash will now be regulated in a similar manner as traditional money-order providers such as Western Union Co. They would have new bookkeeping requirements and mandatory reporting for transactions of more than $10,000. Moreover, firms that receive legal tender in exchange for online currencies or anyone conducting a transaction on someone else's behalf would be subject to new scrutiny, said proponents of Internet currencies.
...
http://www.zerohedge.com/news/2013-0...ney-laundering
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Old 03-22-2013, 07:27 AM   #13
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Originally Posted by rblong2us View Post:
I reckon the relatively sudden move into bitcoin is a strong indicator that confidence in fiat is dissolving and as people wake up and look around for a relatively safe alternative, bitcoin actually becomes a consideration.
but you have to put it into a proper perspective, guys... I mean, the market cap of BitCoin is really TINY, so ANY, even minuscule flow from paper -> BC, makes huge spikes in BC demand -> BC's price rise, even meteoric, DOES NOT equal to "confidence in fiat is dissolving", in a broad sense. I reckon, it is maybe .0000000(0)1 % of disillusioned paper owners, or people who scramble to get their money over borders like Argentina's, at the moment (anecdotally, pickup of BC Wallet applications from Argentina's IP addresses has recently spiked hugely), that might cause more interest in it, also BC has been hyped much recently on alt media/alt finance sites - so I hope I'll see some drop in their prices again, to load up a bit (coins)

EDIT: currently, ~11,000,000 bit coins is in existence (source: https://blockchain.info/charts/total-bitcoins), @ $73 approx., gives what, ~$803millions in total market cap. It doesn't exactly take someone of JPMorgan's size, to pump & dump or do whatever they really please to that chart, up, down and sideways - and with their both hands tied in the back, and blindfolded.

Actually, knowing the predetermined rate of increase of the number of bitcoins, and the price rise, we can calculate, how much money was put into the bitcoin over a given timeframe, right? So there was approx 10,500,000 BCs in the beginning of 2013, @approx $15, so market cap at the beginning of 2013 was approx. $158millions.

So subtracting Jan 2013 market cap from the current market cap, gives a "whopping" ~$640 millions cash inflow into BitCoins (if I am correct in my thinking, somebody with a proper actuarial background please laugh at me, if I am making some stupid logical error here), so, lets say, ~$250millions inflow/month. Nothing to sneeze at, if your market cap was ~150millions at the beginning of the rally (eeek! Have I just heard some popping sound? ), but certainly, not the kind of "the minions have figured out, that the sky is falling, and they are all all-in into BitCoins" kind of inflow - by a mile.
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Old 03-22-2013, 10:06 AM   #14
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Granted the money in BC is tiny in the grand scheme of things.
But bearing in mind there is on average only $750 million of physical investment (non-industrially used) silver available every month (300 million ounces a year at $30 spot price) & we've just had nearly $500 million dollars go into BC in the last 30 days. I don't think that is insignificant.


The thing I take away from this is that BC is very risky but I am damn sure the silver paper market has to explode soon. With all this Banking malarchy and $500 million moving into a new extremely volatile digital currency (that none of my IT/Finance friends have heard of and my PM friends are highly sceptical of) I am sure there is at least $500 million of new money going into physical silver this month.

Edit: I can't get the pic to show up but this is the URL of the market cap of bitcoins.

http://blockchain.info/charts/market-cap

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Old 03-22-2013, 10:11 AM   #15
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Bitcoin worries me since it seems to be so easily corruptible. What is to prevent someone from writing a program that simply allows them to pop in to existence out of thin air?
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Old 03-22-2013, 10:28 AM   #16
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Originally Posted by ancona View Post:
Bitcoin worries me since it seems to be so easily corruptible. What is to prevent someone from writing a program that simply allows them to pop in to existence out of thin air?
As I understand it -

51% of 'the network' that mines the new coins & processes the transactions would have to agree to the change.

'The network' is the thousands of people around the world mining and processing bitcoin transactions on their PC's. (This is what makes BC hard for govt's to shut down because you can't shut down a single source.)

It would never be in a miner's interest to agree to create more coins than the current construct, because it would devalue their existing coins and the credibility of BC. (Only centralized power wants the ability to make new coins out of thin air because they can spend it or pass on to a small elite. But in the BC construct there is no such advantage.)

Edit: The threat is that a malicious entity changes the program and is able to get enough computing power behind to get to the magic 51%. Apparently there is A LOT of processing power behind BC already and the bigger it gets the harder it would be for a government to pull off. (However the incident I quoted on the 12th of March above is an example of where the network nearly shot itself in the foot by updating to a new version which processed things slightly differently and inadvertently created the type of 51% attack that a malicious entity would try do on purpose.)

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Old 03-22-2013, 10:33 AM   #17
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Originally Posted by ancona View Post:
... What is to prevent someone from writing a program that simply allows them to pop in to existence out of thin air?
I'm far from an expert on this subject, but my limited understand is that the "bitcoin mining" is exactly what you described - computers crunching numbers to create more bitcoins.

The issue is the mathematical process for deriving the bitcoin requires a certain amount of computing power. Folks are already trying to pop out bitcoins as fast as they can. It's the nature of the algorithm (and limits on computing power) that are setting the bound on rate of increase.
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Old 03-22-2013, 10:46 AM   #18
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that's quite correct, PMBug - mining BitCoins, is not materially different from brute-force cracking cryptographic ciphers. As we know (or know from now on), every cipher is possible to crack by trying every possible password (in layman terms), only it might take a "little" time, for even the fastest computers, to try all these possible combinations for passwords. And once correct "password" has been guessed correctly, it is very easy to verify, that it is a correct password indeed - so once a "miner" sends a message "hey I've found one, here it is, check this out!", the other P2P nodes on the network can quickly verify it is indeed a "genuine" find - and if >50% nodes confirms the find, it is awarded to the miner who's cracked it.

BitCoins block cracking algorithm, is designed that way, that it ensures some specific "difficulty" in cracking these ciphers. The beauty of it is, that as the computing power increases over time, the algorithm is getting "harder to crack", to be awarded a new BitCoin. So there's a scarcity built in (quite like the gold's concentration in Earth's crust - it is getting harder & harder to mine it)
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Old 03-22-2013, 02:19 PM   #19
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House in Canada for sale:
http://gma.yahoo.com/blogs/abc-blogs...nvestment.html

"Taylor More is selling his family's bungalow with an asking price of $405,000 (that's Canadian dollars) or 5,521 Bitcoins. He would rather have the Bitcoins."
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Old 03-22-2013, 04:49 PM   #20
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Maybe I'm missing something because it's late on a friday but there seems to be a no lose trade running on Bitcoin right now.

An online betting service Paddy Power is offering 10-1 on BC being @ $100 or below on 31st Dec 2013.

http://www.paddypower.com/bet/novelt...3-4993413.html

The Bitcoin price right now is $65.

So if I buy $1000 of BC and hedge it with a $100 on bet on Paddy Power how can I lose?

If BC is less than $100 on 31st Dec or goes bust, my $100 hedge at 10-1 on Paddy Power gives me a $1000 pay out so I BE. If BC is more than $100 a coin then my $1000 investment in BC is going to be worth at least $1500 so I'm in profit?

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